RDR: Internal standards board a "cheaper" option

The FSA says the establishment of an in-house professional standards model will be cheaper than setting up an independent organisation.

Establishing governance for professional standards would lead to one-off costs of £2.3-£2.5m. This, says the FSA, is more cost-effective than creating a separate organisation which would be more expensive because of higher ongoing costs.

The figure involves recruiting and training staff and running a project team. The establishment of new information systems is expected to cost in the range of £0.5 - £1m. Ongoing expenses include the costs of staff carrying out policy, supervisory and enforcement activity and cost of premises.

The regulator says the expenditure figures were compared with that of establishing a professional standards board as a new statutory organisation.

"We found that the one-off costs for a separate organisation would be comparable, but ongoing costs would be higher - at approximately £5m a year. This is because it is likely that extra services, such as equipment, and operational resources, such as Human Resources, would need to be maintained."

The FSA adds a new statutory organisation would need separate premises and its governing board would require the recruitment of new board members separate from those of the FSA Board.

Its internal governance model will rely on recognised professional bodies to monitor members' qualifications, quality of CPD, and standards of ethical behaviour. 

Regulators anticipate between six and eight professional bodies and other organisations will initially seek recognition from the FSA.

"If our estimate that six to eight professional bodies will seek recognition is accurate, then the cost to the industry of these annual audits will be within a range of £150,000 to £240,000," it says.

In June's RDR Feedback Statement the FSA said it would report on supervision costs in connection with an Independent Professional Standards Board in today's consultation paper. Some estimates had put the cost as high as £38m, but the CII said it could have been as low as £1.5m per year.

Charges for advisers to joing a professional body will be treated as incremental compliance costs, the FSA says.

New members would incur costs of membership fees which, for professional bodies, currently range from approximately £60 to £175 per adviser.

Of the 60,000 existing advisers the FSA estimates to be within the scope of the RDR, approximately 40-50% are currently members of a professional body.

The FSA's consultation runs until 16 March 2010.